The University's largest asset, its endowment, recently grew by more than $1 billion, creating opportunities for new programs, construction development and future research.
Duke's endowment received a 25.6 percent return on its investments in the fiscal year ending June 30, 2007, raising it from $4.5 to $5.9 billion. The return is the third highest among top U.S. universities. Yale University's and Amherst College's endowment returns surpassed Duke's with 28.0 percent and 27.8 percent increases, respectively.
The endowment's five-year return of 17.5 percent and 10-year return of 17.1 percent are the third and second highest in the country, respectively.
"[The Duke Management Company] has achieved a remarkable record over the past several years, with returns that rank consistently among the very best," President Richard Brodhead said in a statement. "These aren't just abstract numbers. Every percentage point represents many millions of dollars more for Duke to invest in financial aid, research programs, scientific infrastructure and other new facilities."
DUMAC manages the University's assets in three investment pools-, the Long Term/Endowment Pool-the largest pool-the Employees' Retirement Pool and the Institutional Reinvestment Account.
David Jarmul, Duke's associate vice president of news and communications, said the specifics of DUMAC's investments are confidential. He added, however, that information on DUMAC's general investment strategy is available in the University's annual financial statement.
"It's fair to say that all large universities with endowments... invest their money in different ways," Jarmul said. "They're not going to put all their money into one stock. They try to have asset allocation across broad categories, but the magic is in the details. DUMAC has been just remarkably gifted in investing wisely."
The University's endowment performed significantly better than the Standard & Poor's 500 Index for the same time period, said Emma Rasiel, director of undergraduate studies in the economics department and an assistant professor of the practice in economics.
"[The endowment's performance] was phenomenal-a really outstanding return relative to the markets in general," she said. "[It] speaks very highly of the team that is managing the endowment."
Junior Jay Schulhof, president of the Duke Investment Club, said it is difficult for investors to consistently perform well. He added that large returns often come at increased risk.
"The people managing the funds are professionals, but just because you're professional doesn't mean you can consistently beat the market," Schulhof said. "There's been a lot of research done that a lot of fund managers [who] try to beat the benchmark have trouble [doing so]."
Rasiel said endowments differ from traditional investments because they operate on longer timelines.
Duke's endowment is also more than a single pool of money.
"[The] endowment is from years and years of giving to thousands of programs at Duke, and the term 'endowment' is sort of an umbrella for the aggregation of all the endowed programs at Duke," said John Burness, senior vice president for public affairs and government relations.
The Economist reported in January that a more forward-looking investment outlook allows universities to take less traditional positions. For instance, endowments were among the early investors in hedge funds, venture capital and private equity, often leading to large profits.
"To the extent that an endowment does have a very long time horizon, it tends to give the portfolio manager more latitude in terms of taking very long-term positions," Rasiel said.
She added that endowments are also less exposed to market bubbles because they service only one client, the University.
Rasiel cited the 1990s technology bubble as one instance when individual investors pressured portfolio managers to invest in overvalued stocks.
"An endowment doesn't have to be worried about [investor pressure]," she said. "The managers know that the University is patient and is willing to accept lower returns for a short period of time."
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